Companies that are incapable of ridding themselves of legacy cultures, inflexible processes, short-term mindsets, and vanity systems will not survive the fourth industrial revolution say experts.
“95% of digital transformation projects fail,” Michael Wade, professor of innovation and strategy at IMD Business School Branding in Asia. “Something isolated by itself sounds really really cool but then you’re jumping into an organization with fixed, inflexible systems and process – the structures, the culture – often that stuff will kill a really good idea.”
Speaking at the Singapore-based version of Orchestrating Winning Performance (OWP) this week, Wade lamented the legacy of failure within digital transformation, citing that Unilever struggled to integrate Dollar Shave Club, having acquired it in 2016 for $1 billion to better understand the B2C model and take on P&G.
“Those B2C processes are not well integrated within the Unilever operating model so somehow [they have to] fit them in,” said Wade. “But they need to do that because unless they can drive the scale from Dollar Shave Club, meaning massive increase in the number of subscribers, they are never going to recoup their investment. So Unilever has succeeded in not killing it, which is great, but they have not succeeded in scaling it.”
As the director of the Global Center for Digital Business Transformation, an IMD and Cisco initiative, Wade collects and studies both successful and unsuccessful attempts at digital transformation in order to create repeatable frameworks.
“Maybe [Unilever] have to adjust the brand but probably what they are going to do eventually is learn about the subscription model and then apply that to their own portfolio of brands, maybe under a different name,” said Wade.
Wade believes the super app platform play of Grab is something every company in the region needs to learn from, adding that if Tencent or Alibaba develop an interest in the mobility ecosystem, they can wipe out competitors using WeChat and Ant Financial.
“Disruptors essentially do what they do by creating value in three ways – cost, experience, and platform value – and how incumbents can respond defensively and offensively,” said Wade. “We try to learn from digital disruptors and digital giants to see how what they do can be applied to more traditional companies.”
Amit Joshi, professor of digital marketing and strategy at the IMD Business School, finds that successful transformations require a buy-in from the board level adding that businesses that fail to enable change have already lost the battle.
“I have seen a bunch of companies that start off with good faith but then they realize that this is taking too long, this is way too expensive, and half-way through they stop – and that’s like the worst because you’ve spent the money, you’ve got no return, and you’ve screwed yourself completely,” said Joshi.
Jørgen Vig Knudstorp, the executive chairman of the Lego Group, told Joshi that the sole proprietorship of the Danish toy production company means that decisions are made relatively fast compared to publicly traded companies that have split the power of decision making. The high-risk AI approach of JS Bank was signed off by one person, eliminating the need for several months of board meetings and presentations.
Mikolaj Jan Piskorski, professor of strategy and innovation, agreed with Wade and Joshi, imploring senior executives attending OWP to remember that no digital transformation program, however brilliant, is a substitute or a silver bullet to saving or turning around a bad business or reversing the impact of a bad economy.
Citing the example of GE and its failure with digital transformation, Piskorski said that succeeding means understanding that the mix of people, machines, and processes requires investments in upgrading internal skills, side projects, mindsets and the infrastructure.
Digital transformation programs need to have quantifiable rollout plans, with defined expectations or targets around reducing costs of doing business, growing revenue, or creating an additional sustainable business model. A common mistake cited by Wade, Joshi, and Piskorski is that companies that fail at digital transformation forget without having a goal to measure results and progress against, any initiative can lose steam.